The arguments for federal regulation are quite often characterized by efficiency concerns. The costs associated with the necessity of having to obtain licenses from, file reports with and comply with the requirements of each and every state in which an insurer does business are quite high both in terms of insurer time and money. The lack of uniformity among state insurance laws, regulations and procedures, sometimes resulting in duplicative and on occasion conflicting requirements, has an adverse impact on insurer efficiency and causes added expense for insurers operating in several states. These costs are ultimately borne by the insurance consuming public. It is argued that federal control would result in more uniform control, less duplication and greater efficiency.

Although the lack of uniformity may be the most often cited advantage of federal regulation, its value and/or the likelihood of its ever being achieved may be overstated for several reasons.

First, the quest for uniformity may be a questionable goal. The insurance industry (especially but not only the property and casualty industry) has numerous ties to the geographic, economic and political environment in each of the various states. Marketing methods, company size, structure and orientation have evolved from and exist within state and regional circumstances. While uniformity of regulatory treatment is beneficial in a variety of situations, diversity is a positive factor when local conditions vary or experimentation is desirable. In a large complex economy such as ours, lack of uniformity is an inherent attribute. Hence, uniformity per se is often a highly overrated virtue.

Second, even if uniformity were a desirable objective, moving regulation to the federal level would not necessarily achieve this objective.

Third, there is not much likelihood that federal insurance regulation would be in one agency capable of eliminating regulatory conflicts and overlaps. Today, even with the McCarran Act as a deterrent to federal regulation, there exists a multitude of federal agencies, either directly involved with or functioning around the periphery of the insurance business, which affect the regulation of the insurance industry. In addition to the more visible roles of the Department of Justice, the Federal Trade Commission and the Securities and Exchange Commission, from time to time there has been the Department of Transportation (nonfault automobile insurance), the Department of Commerce (product liability insurance), the Department of Health, Education and Welfare (medicare, national health insurance), the Federal Emergency Management Administration (federal flood insurance, federal crime insurance, federal riot reinsurance with corresponding oversight of state FAIR plans affording property residual coverage market mechanisms), the Office of Consumer Affairs, the Civil Rights Commission and the various federal banking regulatory agencies as banks more and more have entered into the insurance arena. If the McCarran Act limitation on federal regulation of the business of insurance were removed, one could anticipate that a host of existing as well as new federal agencies would become more directly involved in the regulation of insurance, especially since the provision of insurance widely affects the economic and social life of this nation. Thus, the perception that institution of federal regulation of the business of insurance will achieve a high degree of uniformity and coherence is subject to serious question.

Fourth, although one might prefer dealing with a single regulatory body, both past, recent and likely future legislative proposals for federal insurance regulation do not promise pure federal regulation. It seems unlikely that Congress will preempt state regulation entirely. Thus, instead of hoped for uniform federal regulation, the more likely result would be further dual regulation. That is, an additional layer of federal regulation would be piled on top of state regulation.

Fifth, conflicts and uncertainty would abound. The McCarran Act serves as a delineation of responsibility between the state and federal governments. If the Act were repealed, in full or in part, federal rules or regulations would potentially restrict the state insurance regulators’ ability to act. Each state action on behalf of the public interest could be challenged on the basis of federal preemption under the Supremacy Clause. Much litigation, costs, uncertainty and paralysis would result. In the meantime, both the insurers and the public they serve would be caught in a web of the duplications and conflicts of a pervasive dual regulatory morass. The sought-after benefits of uniformity appear more illusionary than real.

Sixth, in situations where substantial uniformity has been needed, such uniformity has often be achieved in insurance regulation through cooperation among the states, especially through the mechanism of the NAIC (for example, model laws and regulations, standard financial reporting and coordinated financial examinations). The NAIC has proven to be remarkably effective in achieving cooperation between states both as an impetus for action and as a means to reach uniformity in appropriate situations. This is even more true in recent years as evidenced by the adoption and implementation of its accreditation program and active consideration of the interstate compact approach.

In short,

It is sometimes expressed that state insurance regulation should stand or fall upon the performance of the weakest states. That is, state regulation is only as good as its "weakest link." This contention has been described as "pure fallacy." Insurers writing the preponderance of business are licensed in several states, each of which exercises regulatory control. Consequently, if the regulation of several states is effective, virtually all of the business is subject to such regulation. In effect, the stronger states do much to make up for the shortcomings of states whose regulation may be weaker. In addition, there exists regulatory competition between states which provides leverage for higher quality regulation, a kind of leverage which is absent in the single federal insurance regulatory agency approach.

Some maintain that a federal insurance regulatory agency can attract higher quality personnel and can draw upon greater financial resources for its operations than can the states. This argument has long been subject to serious question, especially in recent years with the substantial increase in insurance department funding as well as that for the NAIC; at the same time greater budgetary constraints have emerged at the federal level.